Last year, India got an economist’s budget. But with five states going to the polls soon after the Budget, radical reform is unlikely this time.
An “election budget” is typically one before a general election, high on populism and low on radical reforms states going to the polls soon after the Budget, radical reform is unlikely this time, high on populism and low on radical reforms that may produce many losers in the short-term. But the coming budget will be an election budget too, with a focus on wooing voters in five poll-bound states including Uttar Pradesh, India’s largest. The political stakes are too high to risk an economist’s budget.
The BJP swept the last UP state election in 2017 winning over 75% of the seats. It won 39.67 % of the popular vote against the SP’s 21.82% and BSP’s 22.23%, a huge lead. It can afford to lose many seats this time and yet return to power. But a narrow win will be a bad result for Modi, slowing his momentum considerably as he prepares for the next general election two years hence.
Several factors have hit the party’s prospects. The defection of many BJP stalwarts led by Swami Prasad Maurya to the SP is a straw in the wind. Inflation, always bad for incumbents, is 4.8% measured by the consumer price index but a whopping 13.5% measured by the Wholesale Price Index.
Lakhs of farmers surrounded Delhi in their agitation for over one year, forcing Modi to rescind three perfectly good reform laws. Good economics turned out to be bad politics. Modi stood firm on the farm laws during the 2021 state elections in West Bengal, Assam, Tamil Nadu, Kerala and Puducherry. But the heart of the farm agitation was in Punjab and Western UP, both of which are now poll-bound. Modi judged it better to lose face on the farm laws than risk losing the UP election.
The devastation caused by Covid did not hurt the BJP in the 2021 state elections, but that was before the Delta wave that led many uncremated bodies to be dumped along UP’s rivers. The Omicron wave is now gathering steam. It carries political hazards that are no less than health.
Till December, the economy was recovering fast from the Delta shock, lifting BJP spirits. But Omicron now threatens to sink the economy again. Small businesses that survived Delta may go under this time. Employment, which was picking up, may fall again.
Last year’s budget was an economist’s budget. Finance Minister Sitharaman announced privatisation of all PSUs save in four strategic areas. Apart from IDBI Bank, two more public sector banks and one insurance company would be privatised. Niti Aayog would prepare a list of other candidates (names widely mentioned include BHEL, BEML, Pawan Hans and Neelanchal Ispat Nigam). Auctions would be held for private passenger trains on 150 routes. A National Monetisation Pipeline was to sell old infrastructure assets to raise a whopping Rs 6 trillion to finance new infrastructure.
Later, the privatisation of electricity distribution companies – which have run up stupendous losses of Rs 1.2 trillion – was announced by power minister R K Singh.
This entire line of thinking has now been derailed. Surrender on farm reforms has meant stepping back on all economic reforms. In 2019, new legislation consolidated 29-year-old labour laws into four new codes that constituted modest reform. The President signed the new law, but the government has funked notifying it for fear of raising trade union hackles before the UP election.
When the UP government proposed privatising power distribution, its electricity staff threatened to shut down the state with a strike. The government discreetly retreated. The same thing has happened in several union territories too. The BJP does not want to be seen as anti-labour before the state election.
The auction of rail passenger routes was saddled with so many conditions and lack of a fair, independent regulator that no bids at all were received. The Railway Ministry cannot be depended on to ensure a level playing field for private players.
Air India’s privatisation has finally happened but is not seen as a trend setter. Central Electronics Ltd, a tiny PSU, was sold in an auction for Rs 210 crore to Nandlal Finance and Leasing. This was challenged in court and the government has not pushed the matter further. Nor will it till the state elections are over. The proposal to privatise Bharat Earth Movers Ltd has been put on the back burner since it produces defence equipment, and Opposition parties will paint its privatisation as risking India’s security.
This is the background against which the 2022-23 budget will be presented. So, expect it to avoid areas of controversy such as such as radical economic reforms. It will have welfare schemes and new projects galore for every conceivable vote bank, especially in UP. It will make optimistic assumptions about the impact of Omicron and future Covid variants on revenue and GDP. This may not suffice to ensure comfortable victory in UP, but the budget will certainly try.
This article was originally published in The Times of India on January 15, 2021.